Options: What, How & Why

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Topics: Options

Listen to the replay of the Coaching Call from April 27th to learn about the ultimate low-risk and low-down real estate technique — an Option!  During this call, you’ll learn:

♦ What is an Option
♦ Why are Options less risky than other real estate techniques
♦ How to find Option opportunities
♦ How to get a seller to say YES to an Option
♦ Why you need to know your exit strategy before you write up an Option
♦ How options can be used for non-real estate items too
♦ Option examples
♦ And much more..

Options are the ideal technique to use when you’re not sure if you’ll be able to pull off your exit strategy but you’re willing to bet some money to give it a try.  You should never pay more for an Option than you’re willing to lose.

As real estate entrepreneurs, we all have stories of our favorite deals with big profits but most of us have a few stories about the big one that got away too.  If you use an Option when you’re working on those “big deals” you can reduce your risk of losing money.

This is one of my favorite Option deals:

I had 7-8 Lonnie Deals in a mobile home park in Plano Texas.  This park was really clean and in a great location so I decided to drive through the park to see if there were any other opportunities.. also known as driving for dollars. I was looking for faded “for sale” signs in the windows.  And I also planned to talk to the park manager to see if she knew of anyone who had not paid their lot rent or who needed to sell fast.  The park manager is always a great source for leads.

What I found was shocking!  More than half of the mobile homes were vacant.  What in the world was going on?

A visit to the park manager revealed the situation.  The mobile home park has been sold and the new owner wanted all mobile homes removed from the park so they could convert it to a doublewide only park.

Yikes!  That meant that all my Lonnie Deals had to be moved too. The buyers had not even told me.

The vacant homes I saw were 64 park owned homes.  Most of the tenants had already moved out. (it’s a whole other article to tell you what I had to do to get the other tenants out)

I asked the park manager what they were selling for.  She said $2500 each and they all had to be moved.

In Lonnie Scruggs’ Deals on Wheels book, he talked about buying mobile  homes that can STAY in the park and to avoid mobile homes that have to be moved… especially moving 64 mobile homes.

I could smell an opportunity!  However, I sure didn’t want to write a big check for all 64 mobile homes then HOPE that I could find a park to move them to or find buyers for some of them.

So, I started negotiating the price on the mobile homes. It was obvious that they wanted the homes out of the park more than they wanted the $2500 each.  I asked if I bought 5 mobile homes, what was the least they would take.  I got the price down to $2000 each.  The I asked if I bought 10 mobile homes,  what was the least they would take.  I got the price down to $1500.  Then I asked if I bought 20 mobile homes, what’s the least they would take.  I got the price down to $1000 each.  The I finally asked, if I bought all the mobile homes, what’s the least they would take.  I got the price down to $400 each!

(Negotiation lesson:  If I had asked up front what they would take if I bought all 64 before negotiating little bundles, I would never have gotten the price down to $400 each.   I use this same negotiating strategy when I’m buying package deals from burned out landlords)

As good as that deal was,  I was not willing to write a check for $25,600.

So, I offered to pay the seller $2500 now for the right to buy each mobile home for $400 each.  The $400 would be paid as each mobile home was moved out of the park.

If I only sold a few mobile homes I knew I would get my $2500 back and hopefully make a profit. If I could sell all 64 mobile homes, I’d have a really good payday.  It was worth a $2500 bet that I could make this deal work.

I only had 60 days to get all the mobile homes out of the park.  So, I wrote in to our one-page purchase agreement that I could hold a two day auction at the property to sell any mobile homes that I did not want to keep myself.  They agreed!  These were definitely motivated sellers otherwise I could not have made such a great deal.

To recap, I had $2500 invested in an option to buy 64 mobile homes for $400 each and they all had to be moved out of the park within 60 days.   Plus, I had permission to have a 2-day auction at the property to sell some of the homes.

To make a very long story shorter I sold all 64 mobile homes in two days.  The lowest sales price was $1500. The highest sales price was $8500.

It was a six-figure profit weekend.

Unlike my option contract, I required that the buyers had to pay me the same day they bought the mobile home and I gave them 30 days to get the mobile home moved out of the park.

Flush with cash from my two-day auction, I went back to the park owner to negotiate a discount if I paid for all 64 mobile homes in advance.  They reduced the price by 10% to $360 each.  This is called the deal  after the deal.  If you don’t ask, you don’t get!

See how paying $2500 for the option to buy all 64 mobile homes for $400 was much safer than paying $25,600 up front!

Use Options!  They reduce your risks.

The deals are out there folks.

You’d never find a deal like this listed with a real estate agent or advertised online.  You find these type of opportunities by driving around and talking to people.

An Option needs to be your own deal.  You should not try to get options on other investors transactions.  Only deal with the owner of the property!

I’d love to hear about your favorite Option deal.  Please post it in the Community Forum.

Do you have questions about Options?  Ask your questions about Options in our Community Forum

Tags lease options, options

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